Friday, July 4, 2008

Moody's Blames Underlings

With "the buck stops here" ancient history, Moody's cast blame on its faulty rating system for securitized mortgage instruments to computer bugs and bad apple employees. The Financial Times reported:

The FT revealed in May that a computer bug had distorted these ratings (the company was aware of the problem in February 2007). However, Moody’s maintained the top-notch ratings on these products until 2008, when they were downgraded amid general market declines. Investors in some CPDOs have lost up to 60 per cent of their capital. Revealing the breach of its code of conduct, Moody’s said: “Members of a European CPDO monitoring committee engaged in conduct contrary to Moody’s code of professional conduct.

Moody’s stressed it would overhaul its processes more broadly. “We are taking immediate and appropriate action to address the lapse in our rating process and to ensure that a similar event does not occur again,” it said.

If rogue employees and computer glitches were the problem, why then overhaul its processes more broadly? Something smells like blame delegation and management CYA. But that odor permeates our hallowed halls of government and corporate board rooms. Sad days, indeed for those desiring true leadership.